Sunday, February 17, 2008

All our banks are sub-prime

The Mail on Sunday reports plans by the British Government to borrow money from the Middle East, on Islamic Sharia terms - that is, without, technically, paying interest.

Never mind the Islamophobic subtext: Islam is not the only religion to object to charging interest (which was illegal in France up to the Revolution of 1789). According to The Merchants' Magazine and Commercial Review by Isaac Smith Homans, William B. Dana (1849) (found by Google search here):

The Jewish law prohibited all usury between Jew and Jew, although it was allowed between Jews and foreigners. (Ex. 22 : 25 ; Levit. 25 : 36, 37 : Deut 23 : 19, 20. Compare Ps. 15 : 5 ; Ezek. 18 : 8, 13, 17, Ac.) The reason of this distinction, according to Father Ambrose, was, that God designed usury as one of the ways of making war upon the Canaanites and other heathen nations.

The Canon Law, as it is called, i. e., the ecclesiastical law of the Roman Catholic Church, pronounces the taking of interest, even the least, to be a mortal sin, and declares those who defend the practice to be heretics.

The interpretation of usury as a form of warfare is resonant.

There is also the unreligious technical point, that the money supply must increase to cover the interest charged. Either that, or ultimately all the money in the world will end up in the hands of the money-lenders.

This may not have mattered quite so much when the world was not so monetized - when we built our own houses, grew our own food, drew water from wells and rivers, and made our own clothes. It has to be said that none of it, generally, was as nice as today (though at least water didn't come in plastic bottles that took seven times as much water to make); but as more and more of reality nowadays has a price ticket on it, the inexorable demands of interest must either create unbounded inflation, or by seizing all our assets, enslave us. Perhaps usury is indeed a form of aggression.

Which leads me to wonder where money came from in the first place. How can you invent something, define the world with reference to your new creation (and possession), and use it to claim - to seize - ownership of the world? This is to make the money-issuer - originally the King or Emperor - lord of all the Creation he can control. So is power the only game in town? Maybe civilised life, the quiet enjoyment of one's own hard-won personal property, is merely an illusion, a time-out in the game. But impoverish the middle class and all bets are off - as Germany found out in the 20s and 30s. How foolish must a State be, to allow its mismanagement of finance to threaten the social order. Still, the Germans weren't entirely responsible for the WWI peace treaty that led to the total wreck of their economy; by contrast, look at this latest from Karl Denninger on the current, State-permitted mess.

The power of the State to coin money is nothing to the way the banks multiply it. Something like a mere 3% of all money is in notes and coins; the rest is deposits and credit - i.e. promises. Instead being charged a modest fee for guarding your cash (which is, I understand, the practice of the traditional Swiss bank), you're paid what you think is a nice rate of interest - but thanks to fractional reserve banking, your deposit can be multiplied and loaned out, at even higher rates. No wonder the banks always seem to have the nicest locations, including converted Tudor houses in little Warwickshire villages.

Swelling the capital within the economy ultimately pushes up prices, though as money-lenders become more cautious and call loans back in, the opposite happens; but meanwhile, the expanded money supply also builds-in massive future inflation, because interest must come back, as well as all the existing capital. Even if some of this fake capital is lost because of asset write-offs, the lenders will seek to make up for it by charging more interest on the loans that haven't defaulted. And the difference between the small interest paid out to you on your little deposit, and the larger interest demanded on the much greater loan base, pays for all the overheads and leaves over enough, and more than enough.

Meanwhile, the temporarily bloated money supply inflates assets, including assets that really you must have, such as a roof over your head. In the UK, the M4 measure of money supply has approximately doubled since 2000 - and house prices have done almost exactly the same. But I don't have the power to say, I don't believe in borrowing money so I won't pay so much for your house. And since you (quite understandably) will refuse my lower offer, I will have to rent instead - at a rate that reflects the price of houses. What would houses cost - what would rents be - if home loans were illegal?

So now, in the wake of sub-prime (and other, earlier financial bubbles), we're all clapping our hands to save Tinkerbell's life. The government pumps yet more funny money into the economy to shore up the confidence tricks of bankers, and in the case of Northern Rock, their own voter base. If we understood what this "Tinkerbell" is really like, and what she's been up to, perhaps we'd be better off letting her die.

Except the law's on her side, and she'd take us and our families down with her. After all, by agreeing to borrow, we fix an obligation in nominal terms, even if (owing to events beyond our control, but not necessarily beyond that of the money-makers, and money-fakers) the assets decline in nominal terms. In fact, by first expanding and then contracting the money supply, it is possible for lenders to take your assets and any additional capital that you personally contributed, then reinflate the assets later. Hey presto, they've grabbed your cash. No wonder some Americans trash the house before mailing back the keys.

I think that for those who have the liberty to do so, escape comes in two stages: get your cash out, then buy whatever you need so that in future, you depend on the money system as little as possible. You should also stay mobile - the State needs captives, and a house is an excellent way to tie you by one leg. And the licence plate on a car is the next best thing to a tag clipped onto your ear. Unfortunately, in an overcrowded island like ours, this doesn't seem realistic, but maybe that's why an Irish girl told me, years ago, that farsighted (and typically pessimistic) Germans were buying into rural Ireland. Perhaps in America, or some other land blessed with a lower ratio of population to fertile land, we may escape with the raggle taggle gypsies. Velvet-clad slavery, or freedom and poverty?

What care I for a goose-feather bed?
With the sheet turned down so bravely, O!
For to-night I shall sleep in a cold open field
Along with the raggle taggle gypsies, O!

5 comments:

Nick Drew said...

the romance of it !

AntiCitizenOne said...

http://www.marketwatch.com/news/story/british-government-seeks-power-buy/story.aspx?guid=%7B65E1A63E%2D5227%2D4B75%2D807E%2D427F77C149E6%7D&dist=hplatest

hatfield girl said...

ND's right. Argonauts of the Western Pacific, Rossel Island Currency. Money is the objectivisation of exchange relationships.

SACKERSON said...

Welcome HG, I need a little water with that, I'm not PPE trained. Can you elaborate, please?

ACO: paving the way for more, you think?

AntiCitizenOne said...

That's the idea.

A+L First. B+B next.